“There have been some settlements regarding loan buyback claims with [Fannie and Freddie] and some institutions have reserved for some of this exposure, however, a significant amount of this exposure has yet to be quantified,” Bair said in testimony prepared for a Senate Banking Committee hearing scheduled to examine systemic risk.

Banks paid Fannie Mae and Freddie Mac nearly $21 billion through the end of August to cover soured loans the agencies have purchased from the lenders, according to the Financial Crisis Inquiry Commission. In January, Bank of America
BAC, -0.84%
paid nearly $3 billion to the agencies to cover soured loans made by Countrywide Financial that were purchased by the agencies.

Bair joined other regulators including Federal Reserve Chairman Ben Bernanke and Commodity Futures Trading Commission chief Gary Gensler on a hearing about the systemic risk of large financial institutions.

Bair, who is leaving the agency July 8, is currently a member of a newly formed Financial Stability Oversight Council that is responsible for limiting the danger that big financial institutions could fail and wreak havoc with the markets.

She and other regulators faced a barrage of questions from lawmakers about whether particular nonbank corporations will be designated systemically risky as part of new regulations required by the post-crisis Dodd-Frank Act.

In response, regulators said they will likely be able to provide a mechanical metric to identify a broader group of potential systemically significant institutions but no exact mathematical formula will work to make a final assessment of which firms will be designated.

The FSOC, made up of bank and securities regulators, is charged with designating which nonbank institutions are considered “systemically important financial institutions” or SIFIs, because their failure could unsettle the markets the way the failure of Lehman Brothers exacerbated the credit crunch in 2008. These SIFIs would be subject to gradually increasing capital levels, lower leverage limits and more liquidity.

These firms would join big banks with more than $50 billion in assets in having to comply with the tighter regulation.

FDIC’s Bair said the council needs to collect data on a “limited number” of potential systemic institutions before making a decision on which ones will be considered systemically significant and subject to new regulations. She added that regulators need to provide clarity about which firms will be expected to provide that data based on simple and transparent measures such as firm size.

“The sooner we develop and publish these metrics, the sooner this needless uncertainty can be resolved,” she said.

Bernanke cautioned that even though the regulators can make more information public about a basic metric and criteria for designation they can’t provide an exact formula that can be applied mechanically without any application of judgement.

“Ultimately we are going to have to look at a whole variety of issues which cannot always be put into numerical measure,” Bernanke said.

In response to a question, Securities and Exchange Commission Chairman Mary Schapiro hinted that regulators will not subject the entire $2.7 trillion money-market funds industry to the new regulations.

“SIFI designation is institution by institution and designation does not cover an entire sector,” Schapiro said.

Sen. Sherrod Brown, Democrat of Ohio, raised concerns about whether a large, highly leveraged hedge fund would be designated. He also wondered whether property-and-casualty insurers would be systemically important. He also questioned whether mutual companies engaging in personal lines of insurance pose a threat to the financial stability of the economy.

In response, Deputy Treasury Secretary Neal Wolin declined to comment on whether any particular firm would be designated. He said the council “has not yet landed on what that rule will be styled and the length of the comment period.” He added that the council will put out additional guidance about various factors for designation.

Bernanke: Limited ‘crowding-out’ at present

Separately, Bernanke said he doesn’t think that in the near-term government spending is crowding-out private investment, insisting that interest rates are quite low and there is a lot of excess resources available for firms to - for example - hire additional workers. However, he raised concerns about long-term stability.

“That being said if we don’t address fiscal trajectory we’re going to be facing severe crowding-out problems and severe financial stability problems,” Bernanke said in response to a question by Sen. Charles Schumer of New York.

He also said that if Congress doesn’t agree to increase a fast approaching $14.3 trillion borrowing limit it would result in an increase in interest rates, a worsening deficit and a destabilized financial system.

“The costs would be an increase in interest rates which would worsen our deficit and hurt all borrowers in the economy,” Bernanke said. “The worst outcome would be that the financial system would again destabilize, which would have extremely dire consequences for the economy

Intraday Data provided by SIX Financial Information and subject to terms of use.
Historical and current end-of-day data provided by SIX Financial Information. Intraday data
delayed per exchange requirements. S&P/Dow Jones Indices (SM) from Dow Jones & Company, Inc.
All quotes are in local exchange time. Real time last sale data provided by NASDAQ. More
information on NASDAQ traded symbols and their current financial status. Intraday
data delayed 15 minutes for Nasdaq, and 20 minutes for other exchanges. S&P/Dow Jones Indices (SM)
from Dow Jones & Company, Inc. SEHK intraday data is provided by SIX Financial Information and is
at least 60-minutes delayed. All quotes are in local exchange time.